Liquid Restores Full Bitcoin Backing After Elements Exploit

Liquid Network has restored full Bitcoin backing following the Elements-based exploit that drained roughly 3.4 BTC (~$360,000) from its federation-managed wallet in early November, with reserves now covering all L-BTC in circulation — a key precondition for resuming direct federation withdrawals, which remain suspended under enhanced operational controls. The incident, disclosed by Blockstream, stemmed from a vulnerability in the Elements codebase rather than the Liquid federation itself, and prompted exchanges and wallets to halt L-BTC deposits and withdrawals, disrupting liquidity for the sidechain whose pegged token underpins much of its ~$130 million TVL. Restoration of the 1:1 peg matters because L-BTC is used across Liquid for fast, confidential settlement between market makers and issuers of Liquid-based assets such as Tether USDt, and a prolonged withdrawal freeze risked depegging pressure and forced routing through swap services at unfavorable rates. Blockstream has said a hard fork of Elements is planned to fully remediate the vulnerability, with federation members rotating keys and deploying patched software before direct withdrawals resume. What to watch: the timeline for reopening direct federation withdrawals, confirmation that federation members complete the Elements hard fork and key rotation, and whether exchanges restore native L-BTC rails or keep users routed through third-party swaps.